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The importance of technological innovation in the drilling industry

12 Jan 2016

There is no debating that the drilling industry has drastically changed over these past couple of years. It’s certainly been a tough year for oil and gas workers and the lowering price of oil has challenged many of those working in the operations field. Several factors have contributed to the decline of oil, namely a surge in American and Iraqi oil production when contrasted against China whose demand for oil has decreased considerably. In many instances, offshore drilling has been subjected to the most pressure due to these low oil prices which has consequently led companies to place several offshore projects on hold.

In a fight to survive and thrive, investors have adequately processed the future prospect of the market and begun to reposition their investments. As a result, the sector has initiated a renewed interest towards enhancing technology to improve operational efficiency and cultivate new value enhancing production methods.

Embracing technological innovation is vital for improving the longevity of both offshore and land wells and evolution within the market has paved the way for the implementation of new operational systems, applications and machinery. "Rapid changes in price, such as the halving of the oil benchmark between 2014 and 2015, naturally bring into focus the need for oil companies and their suppliers to reduce costs to maintain viable returns. Technology helps on two fronts," said Paul Markwell, Vice President of Upstream Oil and Gas Consulting and Research at IHS Energy. It is clear that the pressure to adapt is increasing as companies look to carefully allocate budget expenditure for 2016.

Continual Growth

The liberalisation of the oil and gas industry in Mexico has unswervingly contributed to the increased demand and growth of the South America offshore drilling market. With liberalisation comes vast opportunity, where companies have been presented with greater flexibility to commit to high capital investment.

*Numbers correct May 2015.

Walter Oil and Gas Corporation recently announced the successful installation of their newly completed field platform located in the Gulf of Mexico. The new platform is expected to produce 30,000 b/d of oil and 60 MMcfd of natural gas, becoming the third largest fixed conventional platform in the gulf. Joining them is Anadarko Petroleum who is expected to expand operations in the Gulf, where the company already owns 2 million net acres. “For some of us, the Gulf of Mexico is still a very viable place for us to make investments,” says Al Walker, Anadarko CEO.

Although technology is essential when striving for continual growth, the strategic regional placement of projects is equally important. In the Asia Pacific region, offshore drilling activities are most prevalent and increased activity is occurring in the South China Sea. 

Drilling Exploration

The advancement of drilling technology will also help the human race with discovering more about our fascinating planet. Adventurous plans to drill further into the earth’s crust were announced recently, where a drill ship named JOIDES Resolution will set up base in the Indian Ocean and lower a drill bit that will bore through 1.5km of solid rock. This news is ground breaking and if the project concludes with positive results, further expeditions will take place; being the first time in history where humans have acquired physical mantle data.

In order to meet demand, further investment will be needed to ensure future discoveries in further regions afield. Oil & Gas UK’s Activity Survey 2015 focusing on Industry Investment saw £14.8 billion of capital invested and a total of 126 development wells drilled. Yet, it’s crucial that we do not neglect existing operations as this is where many companies within the sector can go wrong. BP stated earlier this month that it plans to continue injecting investment into existing operations led by its joint venture Gulf of Suez Petroleum Co. Plans to expand gas production at BP’s Eqypt platform are also part of the company’s future objectives.
Despite current market conditions, Major Drilling announced that it has remained stable over Q2 and successfully made necessary quality enhancements to productivity. “Our customers continue to focus their work almost exclusively on mine sites, which means they have a much greater focus on production related drilling, such as percussive and underground drilling, which has lower margins. We are continuing to adapt to the current market conditions by investing in and growing our percussive operations,” said Denis Larocque, President and CEO of Major Drilling.

Modern Rigs are the Future

The technological shift has directly contributed to the high success rate of locating and extracting oil with many wells located across the globe. Many land based rigs have taken a longer time to embrace new technologies as many have retained their traditional and conventional designs. As a result, maintenance costs are high and operational output is potentially lowered.

The introduction of modern, newly built rigs with their appealing design and functional structure are noticeably improving productivity and maximising output. In Australia, McKay Drilling is proud to announce that they are fully embracing the technological age and implementing various state-of-the-art changes to its operational structure.  “There’s quite a lot of innovation going on throughout the whole business, from small changes to the master changes in the drill rigs,” said Brenton Wallace, McKay Drilling General Manager. “In corporate structures or multifaceted businesses, the ability to change direction or change the way that you operate is a bit slower. We can be nimble and change direction very quickly as the market deems, whether there’s a boom or a recession, and if there is a requirement for new technology we can interact with it very quickly.”

It is difficult to ascertain where the market will be positioned in a year from now. However, after observing the behaviour of profitable businesses within the sector, it is apparent that decisions with the objective of improving operational performance have been a direct outcome of superior machinery and technology implementation.

In this unpredictable market, it’s wise to show financial commitment towards improving operational safety and the workplace environment with modern equipment and technology training.

“The development of technology in the offshore drilling sector has increased efficiency and the exploration reach to find hydrocarbons. Beyond this, the constant development of technology is largely based around increasing the safety of these operations to ensure the crew and the environment remain safe,” says Alastair Cole, Drilling Sales Director of Spencer Ogden Americas. Drilling safety continues to be a top priority for many companies who are building newer rigs.

“The recent lower demand for drilling rigs has presented an opportunity for many offshore drilling contractors to retire their older assets. Therefore maintaining a more up to date and technologically advanced fleet of rigs to market for upcoming exploration projects.”

Automatic navigation systems, data recording and updated machinery have allowed companies such as National Iranian Drilling Company (NIDC) to expand operational capacity and provide greater opportunities for further well exploration.

In Alberta, Canada, healthy growth has been documented after many companies optimised drilling machinery and various assembly systems, chiefly in the non–oil sands oil and natural gas industry. In Calgary, Husky Energy Inc. has been given the greenlight to begin contraction of a 10,000 b/d heavy oil thermal project in Saskatchewan and is expected to become fully operational in 2018. After overcoming many obstacles, the confidence of Canadian oil and gas contractors is growing and a boom within the sector is imminent.

Adaptation is Key

To maintain a strong competitive advantage, Plexus Holdings has developed unique and original equipment, specifically the POS-GRIP wellhead system to improve operational performance at well sites across the globe. "We enter the current cycle as the owners and developers of a superior, safer, and more cost effective method of engineering which sets us apart from our competitors, and we will exit this cycle with the same unique set of advantages at a time when such features are more important than ever before," Chairman Jerome Thrall of Plexus Holdings PLC said.
There is now a strong preference for modern rigs as stakeholders within the industry are expecting a significant return on their investment. The value of improving operational safety goes hand-in-hand with advancing drilling apparatus. The incorporation of automatic functions and advanced control systems where physical handling significantly has lowered potential safety risks such as operator fatigue and exposure to hazardous material has drastically lowered. 

Improved systems are revolutionising the work environment and becoming the new standard within the drilling sector. Industry statistics reveal that up to five years ago, companies were taking up to nine months to produce oil compared to today’s figures, where many sites are recording extractions within 30 days or less.

Recently, Xodus Group announced the successful securement of £5 million worth of international vibration contracts. These specific contracts identify and reduce vibration in global oil and gas assets which has been a significant problem for many oil and gas operators that potentially could lead to production losses. The latest contract is with Zakum Development Company (ZADCO) for a price of £270,000 where innovative vibration analysis would be performed on the offshore Abu Dhabi at the company’s North Satellite Platform. “The need to manage long term performance and issues has led ZADCO to seek out a more economical future development concept. Reducing vibration has been a major challenge for us as we have increased production on these ageing assets in recent months,” said Mohamed Abdulrahman Al Marzouqi, ZADCO’s Operation Support Vice President for Maintenance.

Solving complex problems and delivering long-term drilling solutions are several benefits of proactive development. A primary example of this is Van Oord , who publicised a strengthened position in the Caspian Sea where more than $500 million worth of contracts are situated. As a result of these projects, Van Oord is now playing a major role in assisting the economic development of the Caspian Sea.

There is renewed hope for those candidates seeking work in the drilling industry. The oil and gas industry has revived itself and investment is pouring in to improve work conditions, safety and most importantly, boost production. We can now see that industry leaders are quickly adapting which will mean that workers will have to acclimatise at the same pace. It’s essential that workers are up-to-date with new operational systems and being proactive with developing their own skill set and operational expertise. 2016 is looking promising for drilling operations.

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